Mar 13, 2014

Enjoy your holiday, just don’t miss your credit card payment by more than 5 days.

On 12 March 2014 (that’s yesterday) new legislation to the Privacy Act has radically changed credit reporting rules in Australia. Prior to these changes, payments that were more than 60 days late were recorded on credit ratings as having “defaulted”, however the changes now mean that any payments that are more than 5 days late will be recorded as “not made”.

At the moment the reporting of late payments only occur with licensed credit (i.e. mortgages, loans and credit cards) however there has been intense lobbying by the telcos to have late payments also recorded (these are the same telcos that charge the consumers an extra processing fee for setting up an automatic payment via credit card) and it is quite possible that late utility and telco payments could be included in the near future. The ATO is also considering having any tax debts listed on SME’s credit ratings. Let’s hope, should these changes be made, that the public are made more aware than these current changes.

My opinion is that being 5 days late on a payment is simply too short to penalise someone which results in having a mark against their credit rating. Consider the following scenarios where possible payments may be inadvertently missed:

  • Change of address and new postal address hasn’t been updated.
  • Illness of accounts payable staff results in missing payment deadline.
  • Going on a holiday and not being aware that a credit card payment is due.
  • Having a sudden illness resulting in hospitalisation and unable to pay bills.
  • Your bills have been misplaced in the mail.
  • Changing of jobs resulting in a different pay cycle (i.e. going from fortnightly to monthly) resulting in short term cash flow issues.
  • An involuntary loss of job due to illness or injury. Often it takes 3 months to receive any insurance payout for income protection, workers compensation or TPD.

These changes will allow banks and other lenders to have more detailed information about payments not being made. Profiling by lenders would be more detailed and can lead to credit being rejected or higher interest rates being charged for those with credit ratings showing non-payments.

If you think this was a timely warning so going forward you can now manage your payments more carefully then think again, these changes are being applied retrospectively all the way back to December 2012. So next time you apply for some licensed credit and you think the interest rates on offer are a little high, it could be because the new Privacy Act has made more information available to your lender.

It is interesting to note that Veda, one of Australia’s leading providers of credit ratings, share price has increased over 20% in the last month and payday lender Cash Converters share price has increased 15% over the same period. Not a bad place to be given these recent changes.

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